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Pay for Performance:

A Clear Signal

for Retention and Engagement

Mark A. Szypko, CCP, GRP

© 2015 IBM Corporation 2

Mark A. Szypko, CCP, GRP

Mark has over 30 years experience as a compensation practitioner, and has held compensation, benefits and HR systems leadership roles for a number of organizations including Honeywell, Digital Equipment Corporation,

Wang Laboratories, Kronos, Comcast, Progress Software and Lightbridge.

Mark has extensive experience in all aspects of compensation, including the design, development, implementation and ongoing administration of compensation systems and programs including base pay, variable compensation, sales and executive compensation. Additionally, he has experience in international benefits, mergers and acquisitions and HR systems selection and implementation.

In his role here at IBM, Mark drives research on trends in compensation practice and spends most of his time meeting with our customers and other compensation professionals to understand the challenges that HR professionals face in today’s market. He speaks on compensation and HR-related topics globally and is a member of the WorldatWork faculty.

Mark holds a Bachelor of Science in Business Administration from Suffolk University and a Master of Business Administration from Western New England College with a concentration in Management Information Systems. He is also a Certified Compensation Professional (CCP), a Global Remuneration Professional (GRP), a WorldatWork Editorial Review Board member, and a recipient of WorldatWork’s Lifetime Achievement Award.


Content and Technology by Compensation Professionals

MARKET DATA

US, Canada, UK and China database for

more than 4,000 jobs

EXECUTIVE PROXY DATA

Executive and board of directors proxy data

for 10,000+ public companies

GLOBAL SURVEYS

International technology data covering more

than 100 countries; consumer retail and

luxury goods surveys

COMPETENCIES

2,000 job models; leadership and executive

competency data; functional and technical

competency data, interview questions,

coaching tips and low cost/no cost teaching

tools or references

CONTENT TECHNOLOGY SURVEY MANAGEMENT Single, centralized tool for survey storage, benchmarking and survey participation

PAY ANALYTICS Analyze internal pay practices against market rates, ensure internal equity and pay program competitiveness

SALARY STRUCTURES Model cost scenarios and analyze impact of changes in salary ranges, compare internal structures using regression analysis

SALARY PLANNING Model and cost multiple merit scenarios, and roll out and administration of increase cycle

JOB DESCRIPTION BUILDING Centralized job description tool with access to proprietary library of 4,000+ job descriptions and competencies


Agenda

What is “Pay for Performance”?

What happened to the link?

Why do we care?

How do we repair?

Questions


What is pay for performance?

5



With your 3.0% increase budget …

a couple of questions





What does your average performing employee expect to get as an increase?





How can you give your average performers a 3.0% increase while at the same time differentially rewarding your top performers AND still only spend 3.0%?

What does your average performing employee expect to get as an increase?


Pay for performance

• 3.0% increase budget

• 2 employees each “doing their job”

• They each get a 3.0% increase


Pay for performance

• 3.0% increase budget

• 2 employees each “doing their job”

• They each get a 3.0% increase


Pay for performance

• Similar pay increases for all

performance levels

• Leading top performers to ask

Impact on Pay Increases


Pay for performance

• Similar pay increases for all

performance levels

• Leading top performers to ask

Impact on Pay Increases

“Was all that extra work worth it?”


Pay for performance

• Employee A paid $20.00 per hour

• Employee B paid $40.00 per hour

• Both “Doing their Job”

• Midpoint = Market Reference Point

• Now what do we do?

40 30 20

Minimum Midpoint Maximum

Salary Range

A B

40 30 20


Salary Range


Pay for performance






40 30 20


Salary Range

A B


Pay for performance






40 30 20


Salary Range

A B


Pay for performance

• A compensation philosophy that asserts than an individuals pay is a

function of their performance

• Performance demonstrated consistently over an extended period of time

• Target pay is achieved over time, not overnight

• As opposed to increase for performance

Minimum Midpoint Maximum Minimum Midpoint Maximum


Pay for performance

If pay increases are made contingent upon performance:

Employee motivation to become a high achiever is increased

The organization has a better chance of retaining top performers

Lesser performers are motivated to increase performance level or look elsewhere



18

Pay for Performance: A Clear Signal for Retention and Engagement



Cultural Changes

Everyone can exceed, if just given the opportunity

- Educational system

- Athletics

- Workplace

The entitlement mentality

Unwillingness to give

0% increases

- Keeping up with inflation



Reliance on “The Event”:

Once-a-year

Minimal communication

Reliance on manager’s memory

Little training

Assessment Forms Became:

Too long

Too complex

Often designed to measure the wrong things



21

Use/Misuse of Merit Matrices

A well-known former CEO has suggested that the bottom 10% of performers need to be culled each year.

– - Rating creep

– - Invalidating rating systems



HR began focusing on those needing help to succeed

- More focus on the “Needs Improvement” employees

- Less focus on “Outstanding” and “Good” performers



Managers focus on the number and forget about the conversation.

Managers aren’t comfortable having difficult conversations.


Why do we care about

pay for performance?

24



“The recession is decisively over”


Job openings


Attrition


Job openings and unemployment


Increase budgets in the U.S. have bottomed out in 2009. Though the rebound is yielding increase, salary budgets are still below the pre-recession levels

More on Increase budgets

2010 2011 2012 2013 2014 2015

Kenexa Compensation

--- 3.0% 3.0% 3.0% 3.0% 3.0%

IPAS 2.5% 3.2% 3.2% 3.0% 3.0% 3.0%

Buck 2.9% 2.7% 2.8% 3.0% 3.0% 3.0%

Conference Board 2.5% 2.5% 3.0% 3.0% 3.0% 3.0%

Mercer 2.7% 2.9% 2.9% 2.9% 2.9% 3.0%

Towers Watson 2.8% 2.7% 2.8% 2.8% 2.9% 3.0%

WorldatWork 2.8% 2.9% 3.0% 3.0% 3.0% 3.1%


Certain HOT Jobs continue to outpace the market exceeding the overall market average of 9% in the 5 years between 2010 and 2015

Hot Jobs

Source: CompAnalyst benchmark database

Job Title Change

Dermatologist 29.80%

Risk Management Executive 29.80%

Clinical Information Systems Director 27.30%

Long Term Care Executive 26.50%

Medical Records Administrator 24.50%

Network Administrator 17.30%

Physician Assistant 17.20%

Chemical Engineer 16.60%

Pharmacist 15.10%


Others jobs aren’t so lucky significantly lagging the 9% average over the last 5 years

Differences between HOT jobs NOT so HOT jobs underscores all the more the need for good market data

Not-so-hot Jobs

Source: CompAnalyst benchmark database

Job Title Change

HR Generalist 3.40%

Electrical Engineering Technician 2.80%

Investor Relations 2.70%

Field Service Representatives 2.30%

Quality Assurance Specialists 0.87%

Mainframe Programmer 0.80%

Attorney -2.90%


A couple of questions


The link

Worldwide, my pay is directly related to how well I perform.

54% DO NOT see a

link

20% uncertain

25% DO see a link


The link

In the US, my pay is directly related to how well I perform.

52% DO NOT see a link

19% uncertain

29% DO see a link


Perceptions of Pay fairness over time

51%

55% 55% 54% 54% 55%

49%

57%

59% 58%

53%

50%

60%

58%

2001 2002 2003 2004 2005 2006* 2007 2008 2009 2010 2011 2012 2013 2015

Pe

rce

nt

of

em

plo

ye

es

w

ho

beli

eve

pa

y i

s f

air

© 2015 IBM Corporation


Drivers of belief in pay fairness

Obviously “fair pay” is important …..

What drives employees’ belief that they are paid fairly?


Pay Transparency

Understanding how pay is determined

Knowing how to maximize pay

Pay for Performance

Believing pay is related to performance

Believing pay is tied pay to goal achievement

Drivers of belief in pay fairness


Drivers of fair pay

70

74

81

77

23 25

39 41

Pay Transparency

Understand howpay determined

Pay Transparency

Know how tomaximize pay

Pay for Performance

Pay related toperformance

Pay for Performance

Pay tied togoal achievement

Pe

rce

nt

of

Em

plo

ye

es

W

ho

Beli

eve

Pa

y i

s F

air

Agree Disagree


48%

Pay

Transparency

9.5%

Actual

Salary

42.5%

Pay for

Performance

Building belief in pay fairness


Communication breakdown

90 87

81 75

79

68

77

62

Understand How Pay Determined Know How to Maximize Pay

Pe

rce

nt

Ag

ree

Executive or Senior Leader Mid-Level Manager Front-Line Supervisor Individual Contributor

“the extent to which

employees are motivated to

contribute to organizational

success, and are willing to

apply discretionary effort to

accomplishing tasks

important to the achievement

of organizational goals.”

Engagement


Engagement

Pride - I am proud to tell people I work for my organization

Satisfaction - Overall, I am extremely satisfied with my organization as a place to work

Advocacy - I would gladly refer a good friend or family member to my organization for employment

Commitment - I rarely think about looking for a new job with another organization

In the EEI, employee engagement is measured by asking employees how closely they agree with the following four items:


Drivers of pay fairness and engagement


Engagement Matters!

TOTAL

SHAREHOLDER

RETURN

RETURN ON

ASSETS

DILUTED EARNINGS PER

SHARE Source: Beyond engagement: The definitive guide to employee surveys and organizational performance, IBM, 2013.


The link: why we should care

36%

17%

0%

10%

20%

30%

40%

50%

60%

70%

Pay Unrelated to Performance Pay Related to Performance

Worldwide, the percent of employees who are seriously considering leaving their organization


How do we repair the link

between pay and performance?

46



Repairing the link

Educate Managers On comp philosophy Program specifics On how to distribute increases About determining performance About how to have difficult conversations


Repairing the link

Merit Pools:

- We suggest that there be two basic pools of money for merit increases:

Management pool

Employee pool


Repairing the link

Merit Pools: - Each of these pools should

have two subsidiary pools:

One for those in the highest performance category (e.g., “Outstanding”)

One for the balance of the organization’s employees.


Repairing the link

Seize the moment 0% merit Differentially reward top

performers


Repairing the link

Re-recruit top performers


Repairing the link

DON’T FORGET!!


Repairing the link

DON’T FORGET!!

Pay for Performance, NOT

Increase for Performance!

© 2015 IBM Corporation 54 54


Mark A. Szypko, CCP , GRP Evangelist, Smarter Workforce - Compensation

Phone: (781) 697 - 0061 [email protected]

Pay for Performance: A Clear Signal for Retention and ...lgpa.org/wp-content/uploads/2015/11/Szypko-LGPA-Pay-Performanc… · Pay for Performance: A Clear Signal for Retention and

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